When the Carbon Border Adjustment Mechanism (CBAM) takes effect, it will mark a new stage in Serbia’s energy transition, shifting the attention from phasing out a single resource, coal, to the costs that will be borne by a part of the Serbian economy much larger than the electricity sector alone. Representatives of the affected industries, including cement producers, see a chance to avert a major impact on the economy in the adoption of regulations that would facilitate the use of alternative raw materials and fuels.
The application of the CBAM, which was approved by the European Parliament late last year, will impose an obligation on companies in six industries – cement, iron and steel, electricity, aluminum, fertilizers, and hydrogen – to pay a tax on the CO2 they emit during production if they want to export to the European Union (EU). A transitional period, in which the obligation will be limited to reporting only, begins as early as October 1 this year, but representatives of the affected industries warn there is little time left to adapt.
The application of the CBAM will affect six industries: cement, iron and steel, electricity, aluminum, fertilizers, and hydrogen
According to Dimitrije Knjeginjić, Director of Lafarge Srbija, the six sectors affected by the CBAM account for over 50% of Serbia’s total carbon emissions, and failure to adapt could lead to serious consequences for the entire Serbian economy.
Six industries to be affected by the CBAM introduction account for 50% of Serbia’s total carbon emissions
“If the application of the carbon tax had started in 2021, the direct cost and direct impact on Serbia’s GDP, according to available emissions data, would have amounted to about EUR 1 billion. In 2022, it would have grown to some EUR 2 billion, as the carbon price in the EU also increased. Based on projections of the carbon price under the EU emissions trading system (EU ETS), the direct impact on Serbia’s GDP could amount to some EUR 4 billion by 2030,” Knjeginjić said at Belgrade Energy Forum 2023.
The impact of carbon pricing on the competitiveness of products can be explained with an example from the cement industry, which accounts for 15,000 jobs in Serbia directly and indirectly.
“Roughly speaking, if the price of cement per ton is EUR 100 plus VAT, the price for CO2 per ton is about EUR 100 at the moment, but that price could double by 2035, and this could even turn out to be a conservative estimate,” Knjeginjić explains.
“The energy transition is not just about replacing coal”
The example of the cement industry also shows that there is no simple solution or single technology that could eliminate carbon emissions overnight. This can only be achieved if multiple measures are applied at the same time, and if cooperation with other industries and the support of the regulators are ensured, above all regarding the availability of alternative fuels and raw materials.
Lafarge has set the goal to reduce its emissions by 55% by 2030, and reach carbon neutrality by 2050. The company is already working on cutting CO2 emissions by using waste as an alternative fuel, utilizing alternative raw materials, and lowering energy consumption in the production process, while a significant part of the emissions still remains unresolved.
According to Knjeginjić, in cement production, the basic raw material is stone, which is 95% composed of calcium carbonate, whose heating releases 50% of the total carbon emissions. Additionally, the process involves the burning of coke and other fuels, which makes up 32% of the emissions. A further 10% comes from electricity and 8% from logistics.
“The energy transition is much more complex than just replacing coal with solar and wind energy. If we solve that part, we will have solved only 10% of our problem, and we will be left with the remaining 90%,” Knjeginjić warns.
The company is already working on possible solutions for carbon emissions from transport and the use electricity, and there are plans as to how to achieve zero carbon emissions.
Lafarge is working on permitting to build its own 26 MW solar power plant
“We are planning to build a station for compressed petroleum gas, which will allow our trucks to stop using gasoline from next year. We are also preparing to introduce electric trucks, which will completely eliminate harmful emissions. When it comes to electricity, we are working on obtaining permits to build our own 26 MW solar power plant, while the rest of the consumption could in the future be covered through power purchase from other wind farms and solar power plants,” Knjeginjić explains.
Adopting regulations is key to survival of affected industries
The main challenge is in the area of alternative raw materials and alternative fuels, which are currently not adequately regulated in Serbia, and which represent a potential “game changer” for the industries affected by the CBAM.
“Urban construction waste has already undergone transformation once, and CO2 has already been emitted, so there are no additional emissions in case of reuse. Every year Serbia generates around one million tons of construction waste, which is created during construction or the demolition of old buildings, and that material today ends up in municipal landfills, mixed with other municipal waste.
“The cement industry in Serbia can dispose of the entire quantity and significantly reduce carbon emissions, potentially by 140,000 tons a year. If we truly want to pursue a circular economy, this is an area that needs regulating so that the industries affected by the CBAM can survive,” says Knjeginjić.
When it comes to alternative fuels, the untapped potential is in landfills, where more than two million tons of waste ends up each year
When it comes to alternative fuels, the untapped potential is in landfills, where more than two million tons of waste ends up each year. Knjeginjić says that Lafarge alone has the technical capacities to dispose of some 220,000 tons, while changing the regulations should solve open issues such as source separation and the import of non-hazardous waste with a high heating value. “The substitution rate at cement plants in neighboring countries is already at 60%, and as high as 90% in Bulgaria, Hungary, and Romania, and all of them allow the import of waste for waste-to-energy purposes. It took us 20 years to reach 22%, while the internal goal is to increase it to 60% by 2026 and completely eliminate fossil fuels by 2030,” says Knjeginjić, adding that this could reduce carbon emissions by 120,000 tons a year.